Saks ‘Conspiracy’ Under Review in Legal Imbroglio
The U.S. Department of Justice (DOJ) and 21 state attorneys general are pushing to reinstate a purported class-action lawsuit accusing Saks Fifth Avenue and several luxury fashion houses of conspiring to restrict employee mobility and keep pay artificially low.
The development comes as the Federal Trade Commission (FTC) is reviewing comments on a proposed rule to ban employers from imposing non-competes on their workers.
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California Attorney General Rob Bonta on Monday announced the filing of an amicus brief last week by 21 state attorneys general in support of an appeal filed in the case of Susan Giordano v. Saks & Co. LLC., which is before the Second Circuit Court of Appeals in New York City.
Other named plaintiffs include Angeline Hayes, Ying-Liang Wang and Anja Beachum. The DOJ also filed its own “friend-of-the-court brief” and along with the attorneys general is trying to reverse the district court ruling, and send the case back for further proceedings.
“No-hire agreements are anti-worker and anticompetitive. They have no place in the labor market,” Bonta said in a statement. “Employees who were wronged should know that we have their backs. Employers should remember that we expect everyone to play by the rules. At the California Department of Justice, we have previously challenged the legality of no-hire agreements and have prevailed. The bottom line is that workers should be able to freely transition to a new job if that new job makes sense for them.”
Joining Bonta were the attorneys general of Arizona, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island and Washington.
The original case filed February 2020 in a Brooklyn federal court alleged that Saks and others—including Louis Vuitton USA Inc., Fendi North America Inc., Loro Piana & C. Inc., Gucci America Inc., Prada USA Corp. and Brunello Cucinnelli USA Inc.—agreed not to poach talent from rivals. The terms require a Saks luxury retail employee looking for a job with a leased entity—ie, a company authorized to carry out leasing operations—to wait six months after leaving Saks before starting the new position. The rule could be relaxed, but only if Saks and the leased entity mutually agree. The case also alleges that the no-poach rules meant workers subject to these agreements were effectively hindered from taking better-paying roles elsewhere. The plaintiffs asked for unspecified damages and an injunction barring enforcement of the no-hire agreements.
In March, Chief U.S. District Judge Margo Brodie in Brooklyn dismissed the case, ruling that the claims of three plaintiffs fell outside of the applicable four-year window. A fourth plaintiff failed to provide a sufficient basis alleging an unreasonable restraint of trade that would allow the claim to proceed, according to the judge. The court’s ruling noted that absent the no-hire agreements, which she found to be part of a broader pro-competitive pact between Saks and the fashion-house defendants, there would be “continual risk” that the brand defendants could use their concessions inside Saks stores to recruit employees.
The attorneys generals’ brief noted their responsibility to protect “residents from unfair and anticompetitive conduct by enforcing both federal and state antitrust law.” The multi-state brief stated that no-hire agreements “impair full and free competition competition in the labor market” and disincentivize employers to compete by “offering better wages or benefits, including job hours and locations.”
The district court erred when it ruled that a no-hire agreement is not by itself unlawful, according to court documents, citing similar antitrust violations where competitors agree to fix prices. In Giordano’s case, the agreements are between equal competitors competing for luxury retail employees, the brief said.
The filing also noted a Second Circuit case, National Basketball Ass’n v. Williams from 1995, indicating that “employers who [are] horizontal competitors for labor [are] prohibited from agreeing upon terms and conditions of employment.” In the labor market, competitors can’t conspire to fix employee wages, the brief stated. Employers are prohibited from entering into employee allocation agreements, according to other federal cases cited in the filing.
The DOJ brief argued that the district court judge failed to address allegations that the “conspiracy” was intended “solely to suppress employee compensation and mobility.” It also overlooked other issues such as active concealment by the defendants of the conspiracy and that the conspiracy extended to all Saks employees.
According to the DOJ brief, Judge Brodie “misapplied the law” on the applicable statute of limitations. It cited U.S. Supreme Court precedent on the continuing conspiracy doctrine, which recognizes that anticompetitive conduct can harm parties long after the conduct started. The brief stated that the plaintiffs’ allegations fit the continuing-violation doctrine because the defendants are “allegedly engaged in an ongoing conspiracy.” The brief pointed out that Judge Brodie’s analysis “risks preventing recovery in damages suits when conspiracies last longer than four years.”
Sourcing Journal reached out to Saks for comment.
President Joe Biden in 2021 directed the FTC to ban or limit the use of non-compete agreements. In January, the commission proposed a ban on all non-competes that would eliminate future non-compete agreements and void all existing contracts. It also would apply to independent contractors, as well as anyone working for an employer, whether paid or not. The agency said that stopping the practice could increase wages by nearly $300 billion per year and expand career opportunities.
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” FTC Chair Lina M. Khan said in January, noting how ending the practice would promote innovation and healthy competition. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.”
In March, the FTC extended the public comment period for the proposed rule until April 19. A vote on the final version of the proposed rule is expected in April 2024. That’s expected to give staff enough time to consider rule changes. The FTC received nearly 27,000 comments on the current draft, according to Bloomberg.
Retailers have a history of suing former employees who violate noncompete clauses by leaving to work for the competition. Many of the FTC’s antitrust campaigns involve pricing problems. But one potential case being closely watched involves Amazon’s pricing power and policies that allegedly force merchants to use its logistics and advertising services.
